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News & Insights on Europe

News and Views on Europe – 2 Feb 2018

posted by eucentresg

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Theresa May visits China
The British Prime Minister Theresa May, accompanied by her husband Philip and a “largest ever” business delegation, kicked off her three-day visit to China on Wednesday (31 Jan). It’s her second visit to the China. Previously, Ms May had visited the country for the 2016 G20 Summit in Hangzhou.

Her trip this time started in Wuhan, the capital of Hubei province. After delivering a speech at Wuhan University, Ms May unveiled an education deal that involves the extension of an existing math teacher exchange programme into 2020, as well as the launch of a campaign to encourage English language learning in China.

She flew to Beijing on her second day where she held the annual bilateral prime ministerials meeting with Li Keqiang, China’s premier, with trade issues topping the agenda. Currently, bilateral trade is unbalanced with the UK importing more from China than it exports to China, and tiny in comparison to the volume of Sino-German trade. Li promised that “China will open even wider to the UK“, particularly for agricultural and dairy products. In addition, Li pledged that Sino-British economic ties will not be negatively affected by the UK’s departure from the EU (in March 2019).

Ms May’s subsequent meeting with Chinese president Xi Jinping, on the other hand, focused more on global issues such as North Korea’s nuclear ambitions and climate change because, in the words of Ms May herself, this was a meeting between two “permanent members of the Security Council of the United Nations”. Ms May raised environmental issues with Mr Xi – and she presented him with a box-set of the BBC’s Blue Planet II series. Interestingly, Ms May gamely spoke of the “British dream”, echoing Mr Xi’s slogan of a “Chinese dream”, and tactfully avoided the subject of human rights, at least in her public remarks.

While leaders hailed the “Golden Era” of bilateral relations, Ms May’s visit comes actually at a testing time for the two countries. China was reportedly fuming that Ms May has refused to formally endorse the Belt and Road initiative (BRI), a key demand from Beijing for the trip. Neither did Beijing feel positively towards the UK’s demand that China play by international rules not least in terms of foreign trade. China also appeared to be still bitter over May’s decision to delay a permit for a Chinese-funded power plant in the UK back in 2016, with an op-ed from state-run news agency Xinhua (published on Wednesday, 31 Jan) calling it “China-phobia.”

But more contentiously, the trip started just before Phase II Brexit negotiations are about to commence. Chinese and international media alike all linked the trip to the thorny issue of Brexit. A Chinese scholar wrote in Global Times that “China visit may help May weather Brexit storm” because the UK can play the “China card” in dealing with the EU27. Likewise, a China Daily editorial believed that “upgrading China-UK relations and securing Chinese investments would effectively help to ease the ensuing withdrawal pains the UK is expected to suffer”.

In contrast, western media were starkly less upbeat as encapsulated in the title of a Politico article “‘Auntie May’ lost in China”. A British analyst asserted that the UK won’t get a better trade deal with China outside the EU, adding that Britain’s advocacy for free trade is nostalgic in nature and will only stir up the unpleasant memories of colonial trade system that exploited Asian countries. For The New European newspaper, Theresa May’s China visit signals Britain’s weaker place in a post-Brexit world. Ms May’s excessive business focus led the newspaper to lament that a “sad decline” has already happened to “our national self-esteem and our confidence to influence the world towards ideas beyond mere economics.” Similarly, describing Ms May’s visit as an “awkward” trip, The Economist suggested that Britain’s clout is weakening vis-à-vis Beijing and that Ms May’s any attempt to woo China will be viewed suspiciously by Brussels and Washington who both treat Beijing as the “strategic competitor”.

 

Brexit Phase II Negotiations about to start: Divided UK vs United Europe
The Phase II of Brexit negotiations focusing on establishing future political, economic and institutional linkages between the EU27 and the UK is about to start soon. But just as such important negotiation approaches, the fragile Brexit consensus inside the UK’s ruling Conservative Party is crumbling at its foundations – the “hard” and “soft” Brexit wings of the party become increasingly irreconcilable. Late last week, Philip Hammond, the Chancellor of the Exchequer and a soft Brexiteer, and Jacob Rees-Mogg, a popular backbencher (allegedly harbouring leadership ambitions) and a die-hard hard Brexiteer, rolled out competing visions on Brexit, revealing the renewed Tory divisions. The former in Davos said the UK should consider forging a customs union with the EU while staying only ‘modestly’ apart from Europe. His stance drew fierce and rather quick criticism from Rees-Mogg, who argued (within hours of Hammond’s speech) that Hammond’s “soft Brexit” is not what people voted for in June 2016 and accused the Chancellor of trying to thwart Brexit.

Hammond was in Davos with Prime Minister Theresa May to attend the World Economic Forum Annual Meeting 2018. There Theresa May made a speech on post-Brexit Britain’s aspiration on becoming a tech hub, and met with American president Donald Trump. Trump challenged her to take a tougher stand in the upcoming Brexit negotiations, because “the European Union is not cracked up to what it’s supposed to be.” Conceivably, Ms May wants exactly to be the so-called “bloody difficult woman” in the talks that will fundamentally shape her country’s future, but she presides over a deeply divided Cabinet while the EU27 sitting on the other end of the negotiation table shows considerable unity.

On Monday (29 Jan), EU ministers on the General Affairs Council formally adopted draft directives for negotiations on a Brexit transition period following a discussion lasting less than 2 minutes. The directives have been summed up as “status quo transition without institutional representation, beginning from Brexit date [29 March 2018] to end of the transition deal on 31 December 2020.” More specifically, Deputy Prime Minister of Bulgaria (the country holding the current six-month rotating EU presidency) Ekaterina Zaharieva said the EU envisages “full EU acquis [the body of EU law, including any changes made during the transition period] to be applied in the UK and no participation in the EU institutions and decision-making.” Accepting “full EU acquis” would entail the UK upholding the principle of four freedoms including, most contentiously, the free movement of people. Ms May said in Beijing that she will fight the proposal to give EU citizens residency rights during the transition period as there has to be a “difference” between people from around the continent coming to the UK while it is still a member of the bloc and those who move after it exits.

At a news conference shortly after the adoption of the directives, Michel Barnier, the EU’s chief negotiator, added forcefully that the UK would be barred from implementing any new trade deals (or other international agreements) without the EU’s permission because the UK’s potential bilateral trade deals will interfere with the functioning of the single market and the customs union. Nevertheless, the UK’s Brexit Secretary David Davis told the House of Lords European Union committee Monday (19 Jan) that Britain wants to be able to negotiate and sign deals, but to hold off from implementing them until the end of the transition period. Moreover, EU officials have rejected the City of London’s proposal to strike a post-Brexit free trade deal on financial services. There was a suggestion by some that the UK could pay for its financial services sector to access the single market post-Brexit. This “pay for access” proposal has not yet been tabled at any formal Council meetings and was only one of the “creative solutions” being considered because progress with the talks “has been so glacial” that there is “a need to consider creative solution”. Additionally, some considered that such payments into the EU budget would benefit all member countries as the EU struggled to fill the budget hole left by Britain’s departure.

Since Britain voted to leave the EU 19 months ago, some of the world’s most powerful finance companies in London have been searching for a way to preserve the existing cross-border flow of trading after it leaves the bloc in 2019. The EU’s rejection increases the likelihood that the City will trade with Europe under less favourable terms and could accelerate corporate contingency plans to move more operations to the continent from London.

Interestingly, with the start of Phase II negotiations on the horizon, the results of a poll commissioned by the newspaper Guardian were released last week. The survey, carried out in mid-January, found that 47 per cent of those polled want to have a second say on Brexit when the final terms of the EU deal are known, with 34 percent against the idea. The survey result is not surprising – a confidential analysis by the British government on the impact of Brexit suggests that the country would be worse off in any likely post-Brexit scenario. The analysis examined the three most plausible scenarios for the UK’s departure — a comprehensive free trade deal with the EU, a no-deal Brexit, and a soft Brexit with continued membership in the European Economic Area and the single market — and found that under all the scenarios, Britain would be worse off in 15 years than if it remained in the bloc. According to the report, almost all sectors of the economy analyzed would be negatively impacted in all the scenarios, with the hardest hit including manufacturing, food and drink, cars and retail. Only the agricultural sector would not be adversely affected in a no-deal Brexit. Under the pressure from Labour MPs, the government will release the leaked analysis to all parliamentarians.

 

Trump turned his sights on the EU over trade
All around the world, countries and trade blocs are not spared from President Trump’s America First policies, with the most recent victim being the EU. Although at WEF in Davos, he had claimed that the “US is open for business”, we would do well to remember that one of the first acts carried out by President Donald Trump had been the order to formally withdraw from the Trans-Pacific Partnership. Early last week, Trump’s administration announced that punitive tariffs of up to 30% would be imposed on solar cells, affecting South Korean and Chinese firms, not to mention slowing down solar installation in the U.S as well the reduction in scale of transition to renewable energy.

A few days ago, during his first British interview, President Trump lambasted the EU for being “very, very unfair to the United States. And I think it will turn out to be very much to their detriment”, precariously alluding to the use of Section 301. Under Section 301, the U.S is entitled to “take retaliation to enforce U.S rights under a trade agreement”.

In the immediate aftermath, Brussels responded in kind, that it was “ready to retaliate.. (should the EU’s) exports be affected by any restrictive trade measures by the United States”. This eminent trade standoff is not foreign to both parties, like how trade relationship between the two trade-dependent hub economies has not been completely copacetic –back in 2002, former US President George Bush announced “temporary safeguards” against steel imports from the EU, Brussels had struck back on American imports, from farm goods to Whiskey. Today, goods and services trade with the EU exceeded $1.1 trillion, making EU as a whole the largest export market for the United States. Trump particularly has a bone to pick about German imports of automobiles, that the trade surplus has been inflated by Merkel.

Because the traditional liberal order has been predicated on the assumption of free trade, repeated incidences of trade-related hostilities can lead to the United States inadvertently alienating its allies. The EU is ready to defend its economic interest, and if both the EU and Trump were to steamroll ahead, a trade war might become inevitable, predicted as early as in 2016 by Brookings.

 

Issues around migration continue to divide the EU
Issues around repatriations of migrants in Libya and in the EU, in particular in Belgium, to their countries of origin have sparked a heated debate in Europe and Africa alike. Libya has long been a transit country for migrants seeking a better life in Europe. On Monday (29 Jan) the African Union’s (AU) chief declared that more than 13,000 migrants have been repatriated from Libya since the beginning of December, nearly two months after reports emerged showing refugees being sold as slaves. The AU, in cooperation with the United Nations (UN) and European Union (EU), is repatriating migrants out of Libya on flights organised by individual African countries. The original goal was to fly-out 20,000 migrants, but many cannot go back to their home countries and hence have been offered refuge by Niger and Rwanda. Repatriations are a controversial topic, since the returnees sometimes pose a threat to stability and domestic security due to their high numbers (which is the case in the Gambia where nearly 2,500 Gambians were flown home but the country only has a population of 2 million), additionally they are often traumatised combined with a lack of assistance. High unemployment exacerbates the situation. In order to stem the flow of migrants coming to Europe, the EU is funding job training and youth empowerment programmes across the African continent with the 3.2 billion EUR Trust Fund for Africa.

Belgium, has also come under the spotlight lately for its deportations. Theo Francken, the secretary of state for immigration, also known for his hardline stance on refugees, recently invited Sudanese officials to Belgium to help identify illegal immigrants and return them to their country of origin. Later reports emerged that some of the deportees were tortured in Sudan. Hence human rights activists and several Belgian political parties are calling for the resignation of Francken. However, Belgium is a coalition government and Francken’s party has threatened to collapse the government if Francken is sacked. In the light of mounting pressure Prime Minister (PM) Charles Michel ordered a suspension of deportations to Sudan until the conclusion of “an independent inquiry”, with the help of the UN. He also insisted that his ministers would continue to pursue a “firm and humane migration policy”. However, a proposal by the government that would allow police to raid homes of people suspected of lodging undocumented migrants has also caused an major uproar. The bill is heavily criticised by NGOs and was rejected by a committee of judges who reviewed the proposal.

Migration is also a thorny issue for Bulgaria, currently at the helm of the six-month rotating presidency of the Council of the EU. The six-month presidency is mandated to find a political consensus among member states by the end of June on the so called Dublin regulation, which determines who is responsible for processing asylum claims. Bulgaria seems to be following German demands to first address easier points of the EU asylum reform bill, before tackling the most difficult one – mandatory asylum-seeker quotas. Some member states, including Germany, insist that a quota system needs to remain part of the Dublin reform, while others, primarily the Visegrad four (the Czech Republic, Hungary, Poland and Slovakia) strongly opposed such a mandatory quota system.

In order to discuss the issue of mandatory quotas, the two leaders of Hungary and Austria, met in Vienna on Tuesday (30 Jan). Austrian Chancellor Sebastian Kurz and his Hungarian counterpart Viktor Orbán pledged to closely cooperate to challenge the EU’s migration policy. They discussed the closure of the Balkan migration route and the security of the EU’s external borders. Kurz, whose government is backed by a far-right party, sided with eastern European states, stating at a joint news conference with Orbán that “A key task of the EU – of us as member states – must be to stop illegal migration into Europe and to develop aid in the countries of origin. Only distributing (refugees) in Europe does not work.” He added he would position Austria as a “bridge builder” between the “Visegrad group” and the EU. Austria will be next in line for the rotating EU presidency.

The criticism of the mandatory migrant quota was also addressed by Czech Prime Minister Andrej Babiš. In an interview with Politico he insisted that he is pro-European and repeatedly stated that Euroscepticism would grow in the Czech Republic if the EU did not take account of opposition to policies such as migrant quotas. He opined that the EU could not function if France, Germany and the European Commission did not take account of the views of other member states. Babiš also said the EU should tackle migration by strengthening its external borders and offering more aid to the Middle East and North Africa region (MENA), echoing a message also made repeatedly by other Central European countries. “These quotas are dividing Europe and are ineffective,” he said. “It’s a problem mainly for the image of Europe in the eyes of our citizens and it’s a pity because of course Europe is an excellent project.” The Czech Republic has one of the highest levels of Euroscepticism among EU member states with only 30% of Czechs having a positive image of the EU, according to a Eurobarometer survey carried out late last year.

Issues around migration and in particular over family reunification threatened coalition talks in Germany. After days of heated debates Angela Merkel’s Christian Democratic Union (CDU), its Bavarian ally, the Christian Social Union (CSU), and Martin Schulz’s Social Democrats (SPD) agreed on Tuesday (30 Jan) on new rules for admitting the relatives of refugees into the country. The SPD favoured a more lenient approach towards family reunification. Under the new deal, Germany will extend a stop on family reunification, which went into effect in 2016, until August this year. After that Germany plans to take in 1,000 family members of refugees per month, as well as “hardship” cases – a potential backdoor to admitting significantly more than the 1,000 people per month. Following the large inflow of refugees in 2015, the subsidiary protection status was imposed, which restricts refugees’ options to bring over their relatives. Some 278,000 refugees in Germany were given a subsidiary protection status, also in part, to appease a right-wing base that helped make the far-right Alternative for Germany (AfD) the third largest party in September’s general elections. The CDU/CSU bloc is also seeking to impose an annual refugee cap of 220,000.

 

Crisis in Catalonia getting more complex
Tuesday’s (30 Jan) decision of the speaker of the Catalan Parliament, Roger Torrent, to postpone the election of a new regional President continues Catalonia’s deadlock – with no end in sight. Prior to that, Spain’s highest court said on Saturday (27 Jan) separatist leader Carles Puigdemont, the sole nominee, was ineligible as long as he remains in exile in Belgium and also warned Torrent that he could face criminal charges if the election went ahead. Puigdemont is in self-imposed exile in Brussels and faces arrest on charges of rebellion, sedition and misuse of public funds if he returns to Spain.

Spanish government officials said the only two potential solutions to end the stalemate are new regional elections or the Catalan separatists agreeing on a new candidate (who is neither a fugitive nor in jail). Torrent’s decision, which also ruled out a new candidate, has raised tension among separatist parties. Now the leaked text messages from Puigdemont admitting political defeat could deepen the rift.

According to the President of the EU’s Committee Karl-Heinz Lambertz, the Catalan crisis will continue for months. ”At the moment I don’t see a real solution,” he told EUobserver in an interview. Argelia Queralt, a professor of constitutional law at the University of Barcelona, pointed out the legal implications: “When there is a new government, article 155 (which imposes direct rule on Catalonia) is lifted. That’s why it’s so important for the regional president to form a government: so the institutions can return to normality.” He felt that it is important for Catalonia to return to the constitutional fold and to political dialogue with the central government, for any real solution to the political deadlock now.

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